Brooklyn Office Market Heats Up With New Development
- Feb 29, 2016
New York—Office buildings are replacing residential projects in Brooklyn where “commercial gentrification” is under way as big-name developers begin investing in a borough that has a tight office supply and growing demand, especially from technology and creative companies.
Taking notice of the trend, two developments that had been planned as residential changed gears late last year and announced a switch to office. The new office plans for 420 Albee Square and 10 Jay St. in Dumbo are among the developments that “will dramatically change the landscape of the Brooklyn office market in the near future,” according to JLL’s Brooklyn Office Outlook Q4 2015 report.
Downtown Brooklyn has one of the lowest vacancy rates in the United States–4 percent–so it is not surprising JEMB Realty, a Manhattan-based real estate development, investment and management company, announced in November that it would construct Brooklyn’s first Class A commercial office building at 420 Albee Square instead of a multifamily tower. The 40-story, 475,000-square-foot-office building will break ground this year and be completed in 2018. Located in the heart of the Brooklyn Tech Triangle and at the center of the borough’s transportation hub, it is the first speculative ground-up office development in Downtown Brooklyn in decades, according to the JLL report. The boutique building will feature floor-to-ceiling glass and column-free floor plates and offer views of New York Harbor and Manhattan.
A month earlier, Glacier Global Partners said it would convert a 10-story warehouse at 10 Jay St. in Dumbo to commercial office space instead of 46 condos. The 196,516-square-foot speculative redevelopment building is expected to be delivered later this year.
Dumbo had the highest asking rent for office properties in Brooklyn at $63.14 per square foot, according to the JLL report. Williamsburg came in second with asking rents at $58.64 per square foot followed by Downtown Brooklyn at $50.64; Atlantic Avenue Corridor, $39.04; Flushing Avenue Corridor, $30.28, and South Brooklyn Waterfront, $24.31.
Midtown Equities, which is converting warehouses along the waterfront in Dumbo into high-end retail and office space called Empire Stores, is “the top of the market product in Brooklyn,” said Michael Berg, a managing director with JLL in New York City.
Rents for the office space, about 440,000 square feet, range from $65 to $85 per square foot. Furniture retailer West Elm has taken about 135,000 square feet of office space, in addition to 14,595 square feet for a retail store. Berg said West Elm has already begun its tenant fit-out work and expects to move in this year. 72 and Sunny, an advertising company with offices in Los Angeles, New York and Amsterdam, has signed a lease for approximately 45,000 square feet, a portion of both the fifth and sixth floors.
Berg told Commercial Property Executive there is activity for the remaining space, a bit less than 200,000 square feet.
He said the market fundamentals in Brooklyn are strong and the demand is increasing, particularly from the tech and creative sectors that turned Midtown South into Manhattan’s hottest office submarket starting five years ago.
“The good, cool building stock has become really expensive,” Berg said of one factor that may be driving companies to seek Brooklyn space rather than Midtown South or elsewhere in Manhattan.
The other is location – many of the employees at city’s tech and creative companies live in Brooklyn, lower Manhattan or Queens.
“All those locations work very well for the Brooklyn office product,” Berg told CPE.
Tax credits also provide a strong incentive, particularly the city’s REAP program which provides a $3,000 tax credit per employee for 12 years for tenants relocating to Brooklyn, he said.
Much of the office development in Brooklyn is conversions and adaptive reuse projects. Many top developers are involved in projects like this, including Tishman Speyer, which agreed in August to buy part of Macy’s Brooklyn store at 422 Fulton St. to create a slimmed-down freshly renovated store topped by ten stories of Class A office space.
When they announced the company’s first Brooklyn project, Tishman Speyer Co-CEOs Jerry Speyer and Rob Speyer said the partnership with Macy’s would “produce a transformative mixed-use development in one of the nation’s destinations for today’s creative workers and new economy companies.”
Rudin Management and Boston Properties are planning a 675,000-square-foot office development called Dock 72 at the Brooklyn Navy Yard, where shared office giant WeWork will be an anchor tenant. WeWork will also be an anchor along with Etsy at the Dumbo Heights urban campus being developed in Dumbo by Kushner Companies, RFR Realty and LIVWRK into creative office and retail space. RXR Realty and Westbrook Partners are buying industrial properties at 47 Hall St. near the Brooklyn Navy Yard to convert into nearly 700,000 square feet of office, flex and retail space by 2017, according to the JLL report.
“When you start to see these types of players, it’s a very strong signal that this is not a flash in the pan. This is something that will change the landscape going forward,” Berg told CPE.